How Hospitals Can Shape Sustainable Cost Control

Savings came through workforce reduction (primarily in nonpatient care areas), management restructuring and flattening, benefit changes, and an examination of operations and the way work was being done. Every aspect of support services was analyzed, including opportunities to consolidate service contracts, consolidate programs, streamline vendor relationships, improve supply chain, and cut waste.

The teams set a goal of permanently reducing costs by $85 million in one year, and while it didn't hit that target due to capital requirements necessary for implementation, it did net $67 million in sustainable cost reductions out of a $2 billion operating budget.

"Plus we earned the admiration of our medical staff by starting this initiative with corporate," says Maryland. Once the initial corporate-level reductions were made, however, the organization did turn its attention to the clinical areas with a goal of implementing a new approach to patient care.

"When you create a new model of care in a system of hospitals, you have to first believe that the way care is delivered today isn't the most efficient way. And that's where the hard work around utilization comes in. It's more than length of stay; it's about resource consumption and upsetting pathways and protocols that aren't evidence-based," Maryland says.

To break patterns of utilization and reduce patient care costs, St. John Providence created new comanagement agreements with physicians in three service lines (SJPHS East Region Cardiovascular LLC, SJPHS West Region Surgery LLC, and SJPHS Medical Neurology LLC) and hospital management agreements with other physician partners.

"We agree to what we're going to monitor and target and then partner together to manage the patient base. Essentially the physician takes the lead with their peers. The most important part is the data and education; the provider directs utilization and resource consumption," explains Maryland.

St. John Providence's comanagement agreement model created a joint venture management services company, formed as an LLC with the physicians; 50% physician owned, 50% hospital or health system owned. The management company's sole asset is a management contract for a given service line with the hospital or health system. The goal of the management company in managing the service line is to improve quality of services and outcomes, improve operational efficiency, and develop new clinical programs.

Physicians are compensated for their direct participation on the board and committees, as medical directors, and for projects. If performance incentives are achieved on quality, operational efficiency, and program development, the management company will earn a bonus from the hospital. All investors (both physician and hospital) will receive an equal share of the bonus.

For example, in May 2011 the existing performance for first-case on-time starts was performing a combined rate of 40% for Providence Hospital surgical locations. When measured in April 2012, performance stood at a combined rate of 82%. This improvement, Maryland says, can be attributed at least in part to 43 surgeons from 10 areas of surgical specialties working together with the hospital leadership team to develop new criteria and co-implement new expectations that promote increased awareness and accountability.

Although CMS' Medicare Shared Savings Program put a spotlight on this concept, the idea of shared savings between the hospital and physicians is a concept that's been slow to take flight. In the Cost Containment: Overcoming Challenges report, only 10% of respondents said their organization had implemented a bonus structure to share cost-containment savings among stakeholders, while 48% of healthcare leaders said savings were not shared.

"Changing behavior has got to be done peer-to-peer, with reports providing the information on a frequent basis so improvements can be made, can be tracked, and the physicians can hold each other accountable," Maryland says.

Since it began reworking comanagement partnerships in 2007, the success St. John Providence has had getting physicians aligned with the organization's goals has given birth to something larger. In October 2011, Partners in Care was formed to help manage the ongoing care of over one million patients in Wayne, Macomb, Oakland, Livingston, and St. Clair counties. The 50-50 partnership between St. John Providence Health System and the Physician Alliance, a 2,200-physician network in southeast Michigan, is the next step toward larger, sustainable cost reductions, Maryland says.

"We are moving toward population health management to get at overall cost; we have to track and manage the patient base," Maryland says. "It will be critical to have this alignment if we are to get control over the cost of care."